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8/13/2019 subhiksha- Decision analysis
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SUBHIKSHA RETAIL STORES
Presented by Group 4
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Subhiksha- Background
Founded in 1997 by R. Subramanian
Subhiksha means Giver of all things Good
Ideology: Customers prefer to buy groceries and other items from shops
close to their home, and they like to get it cheap
Initial Investment of 4 lakh
Tag line of Bachat mera adhikar, Subhiksha mera Abhimaan
In 2000, ICICI ventures bought 15% stake for Rs. 15 Crore
In 2008 , Azim Premjis Zash Investments bought 10% stake for Rs 230
crore
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Subhiksha stores- in numbers
First Store in 1997
Opened 9 more stores in that year
1999- 19 stores
200050 Stores
2003140 Stores
2004 -Decided to Expand to outside Tamil Nadu
2006- 160 Stores
2007670 Stores
2008 March -1320 Stores
2008 Sept - 1650 Stores
510 Stores
650 Stores in 1 year
330 Stores in 6 months
Aggressive
ExpansionPhase
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The Rise
1 shop in 1997 grew into 1650 shops in 2008largest retailer in India atthat time
Revenue increased by 700% in the period 2006-2008 (Rs 3.3 bn to Rs 23.05
bn
In March 2008, Subhiksha was named as one of the worlds top 50 Local
Dynamos by the Boston Consultancy Group.
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The Stumble
August 2008- Reports of Subhiksha not paying salaries to staff and defaultingon rent
By the end of 2008, most suppliers backed out from supplying
Could not rise enough capital for its operations
Stopped operations in 2009
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The Case
Case Questions1. With reference to the Indiranagar store and Shastri Nagar stores, was
the decision to expand to new regions instead of revamping the
existing stores and generating revenue from them a sound one?
2. Can any of the decision making tools, if employed, show that the
decision was wrong?
Case ObjectiveTo Understand Subhiksha business model
To understand the benefits of revamping a store and opening a
new store
To use decision making criteria under risk and uncertainty to
determine the decision made by Subhiksha was a sound one
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Case Methodology
The operations of two stores are explainedNew store at Indiranagar and
Revamped store at Shastri Nagar
The case analysis focuses on the aggressive expansion phase where they
deviated from their previous norm & started 300 new stores in every 6
months on average
The cost of operating of each store is found out from the data, and profits
calculated
Possible decisions and outcomes are formulated
Payoff Matrix is created and analyzed the decisions based on it
Analyzing the decisions marked as favorable in each of the decision making
criteria
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Decision Analysis: Assumptions & Calculations
Category ofitem Monthly Sales % Gross Margin Gross Profit in Value
Supermarket 900000 15 135000
F & V 300000 30 90000
Exhibit 6: Monthly Store cost
Particular Amount
Rental 40000
Wages 60000
Electricity 10000
Security 10000
Dump 30000
Allocation of warehouse 34000
Monthly warehouse cost of
2000000
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Outcomes(Gross profit)
Alternative High Moderate None
Revamp 50 stores 16142500 7861635 -8700000
Open 50 new stores 4541650 183300 -8533350
Open 150 new stores 13624950 549900 -25600050Open 300 new stores 27249900 1099800 -51200100
Do Nothing 0 0 0
The Payoff Matrix
High sales value =1.5x(moderate sales value)
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Decision Analysis : Decision Tree
Revamp 50 stores
Open 50 stores
Open 150 stores
Open 300 stores
Do Nothing
Highest
EMV5101378
0
-7616800
-1269467
-3808400
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Revamp 50
Stores
Revamp 50 Stores
0.3333
0.3333
0.3333
16142500
-8700000
7861635
5101378
High
Low
Moderate
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Decision making under uncertainty
Maximax Criterion
Outcomes(Gross profit)
Selection
Criteria
Alternative High Moderate None
MAXIMAX
Criterion
Revamp 50
stores 16142500 7861635 -8700000 16142500
Open 50 new
stores 4541650 183300 -8533350 4541650
Open 150
new stores 13624950 549900 -25600050 13624950Open 300
new stores 27249900 1099800 -51200100 27249900
Do Nothing 0 0 0 0
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Maximin Criteria
Outcomes(Gross profit) Selection Criteria
Alternative High Moderate None
MAXIMIN
Criterion
Revamp 50
stores 16142500 7861635 -8700000 -8700000Open 50
new stores 4541650 183300 -8533350 -8533350
Open 150
new stores 13624950 549900 -25600050 -25600050
Open 300new stores 27249900 1099800 -51200100 -51200100
Do Nothing 0 0 0 0
Pessimistic approach
suggests to do nothing
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Equally Likely Criteria
Outcomes(Gross profit) Selection Criteria
Alternative High Moderate None Equally LikelyRevamp 50
stores 16142500 7861635 -8700000 5101378.3
Open 50
new stores 4541650 183300 -8533350 -1269467
Open 150new stores 13624950 549900 -25600050 -3808400
Open 300
new stores 27249900 1099800 -51200100 -7616800
Do Nothing 0 0 0 0
Same outcome as
the decision tree
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Opportunity loss table
Outcomes(Gross profit) Selection Criteria
Alternative High Moderate None Minimax Regret
Revamp 50 stores 11107400 0 8700000 11107400
Open 50 new stores 22708250 7678335 8533350 22708250
Open 150 new stores 13624950 7311735 25600050 17066700
Open 300 new stores 0 6761835 51200100 42666750
Do Nothing 27249900 7861635 0 27249900
Revamping stores
minimizespotential loss
Minimax Regret Criteria
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Conclusions
From the result of our analysis, we can conclude that their decision of
aggressive expansion was based on a highly optimistic perspective of the
outcome
This backfired on them as the optimistic view is not suited for the retail
business scenario in India
A fairly safe option would have been to revamp their already established
and prosperous stores
In early 2008, when they were in serious debt, they should have gone for
the pessimistic approach and halted the expansion
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Also, the current retail business scenario in India has changed.
Organized retail has grown significantly and retail stores are now easily
accessible.
They no longer possess their old stores as they used them to pay off their debtsNot only do they not possess their initial competitive advantage in terms of
accessibility and first mover advantage, they also have to start from scratch by
obtaining new stores
Thus we recommend that they start with a new model designed on the basis of
the current retail scenario
Recommendations
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References
1. Chabra, P. (2008). Subhiksha Failure: On the wings of some vanity & wax.Retrieved
October 13, 2013, from Business & Economy:
http://www.businessandeconomy.org/29042010/storyd.asp?sid=5192&pageno=22. Dr. L. Suresh Mallya, D. P. (2012, jan-jun). CRITICAL EVALUATION OF A FEW INDIAN
ENTREPRENEURS.AMET International Journal of Management, 65-66.
3. Dr. S. Mani, A. S. (2011, MArch). SUBHIKSHATHE RETAIL PHENOMENON THAT
FLATTERED TO DECEIVE. PRERANA -Journal of Managementthought and Practtices,
47-49.
4. Goswami, D. P. (2010). Subhiksha: To Make-over or not to Make-over?Journal of CaseResearch, 81-98.
5. H.M. Jha Bidyarthi, A. K. (2010). From Subhiksha (Prosper) To Iksha (Perspire):The
Topsy-Turvy Story of Indian Retail Business Model.American Journal of Economics and
Business Administration, 153-156.
6. Janat Shah, R. P. Subhiksha: Managing store Operations.Boston: HArward Business
School.
7. K. Suvarchala Rani, D. S. (2013, June). Small Format Retail Chain: The case of
Subhiksha. Pacific Business Review International, 5(12), pp. 56-60.
8. Sriram, R. (2011, Aug 25). Why Subhiksha Trading Services collapsed. India.
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